The UK economy unexpectedly flatlined in January, recording zero gross domestic product (GDP) growth, according to figures from the Office for National Statistics (ONS). This fell well short of City forecasts for a 0.2% rise and followed a 0.1% increase in December, stoking concerns over growth amid rising energy prices from the US-Israel war with Iran.
Output in the service sector stalled, with the largest negative contributions coming from falls in employment activities and the hospitality industry. Accommodation and food services dropped 2.7%, as fewer people dined out in restaurants, pubs and cafes. The production sector – including manufacturing, mining and energy – shrank by 0.1%, though construction expanded by 0.2%.
Analysts said the economy had been subdued even before the recent leap in energy prices triggered by the Middle East conflict. Oil prices remained above $100 a barrel on Friday, having surged more than a quarter since the start of the conflict two weeks ago. If sustained, higher energy prices are expected to drive up inflation and dash hopes of a Bank of England interest rate cut next week.
Some economists warned that a protracted conflict could push Britain into recession. Andrew Goodwin of Oxford Economics said a worst-case scenario of oil at $140 a barrel could lift UK inflation from 3% to 5% by year-end, potentially forcing the Bank to hike rates again and causing a mild recession.
Chancellor Rachel Reeves defended the government's economic plan, stating: 'Our economic plan is the right one, but I know there is more to do.' She is expected to set out Labour's strategy in a speech next week amid growing calls for an emergency energy support package.
